Online Music Industry Is Focusing on Europe

By VICTORIA SHANNON

Published: January 26, 2004

CANNES, France, Jan. 25—
Europe is the next battlefield for portable digital music, with its eager consumer market and attractive demographics, but complex cross-border legal and financial obstacles are delaying the entry of the biggest names, including Apple Computer.

Still, the online music industry is hungry for the European market, according to many executives at an international music conference that started here on Saturday, and it is preparing to take on the established European leader, On Demand Distribution, a company co-founded by the musician Peter Gabriel that is known as OD2 and powers most existing music services in Europe.

No one involved doubts that the European appetite exists. Last week, the Coca-Cola Company began an Internet-based music downloading service in Britain that attracted 10,000 downloads in its first 24 hours.

Europe is the world's second-biggest music market, behind the United States, and has sales of about $11 billion. According to Forrester Research, European download sales were just 24 million euros ($30.5 million) last year.

The diverse languages and cultural tastes seem the least of the hurdles in Europe. Here, a lower percentage of households have personal computers, are connected to the Internet or have fast, broadband network connections than in the United States.

''A majority of the U.K. population has yet to experience downloading,'' said Rafael McDonnell, head of strategic marketing alliances for Coca-Cola in Britain, at the conference here, known as Midem. ''We need to drive that habit.''

Executives at Apple and Napster said over the weekend that they would love to help Coke do that, but they are still held back by arranging downloading rights across Europe. Eddy Cue, Apple vice president for applications and Internet services, said that the company still planned to offer its iTunes Music Store in Europe some time this year, but he declined to give a specific date.

''Different prices in different countries, different release dates, there are obstacles we are still sorting through,'' Mr. Cue said. ''They're not insurmountable.''

Chris Gorog, the chairman and chief executive of Roxio, which owns the new Napster service, said he, too, would open for business to Europeans this year as well -- as soon as the licensing hurdles are overcome and consumers can get the same kind of choice as the United States version.

''We debuted with over half a million tracks in the U.S., and we'd like to start with the same in Europe,'' Mr. Gorog said. ''The music studios are rolling out the red carpet, but the primary obstacle now'' is getting agreements from music publishers that represent songwriters, country by country. ''Our approach to the market will be to create local, national services reflective of the culture,'' he said.

William Booth, head of music publishing for EMI, said Sunday that he expected a single royalty agreement that covers most of Europe's publishing collection agencies to be settled within the next three to four months.

Coke solved the problem by offering its service on Mr. Gabriel's OD2 platform. OD2 has worked over the last several years to extract agreements throughout Europe, and so far it is the only service to have done so. The OD2 platform is branded largely by Web portals and Internet service providers in individual national markets, like Wanadoo in France, Tiscali in Italy and Virgin Downloads in Britain.

Charles Grimsdale, chief executive of OD2, noted that the company has had to develop support for various release dates by country, 6 pricing systems and 13 payment mechanisms. Purchases made via Carte Bleu, for example, the leading payment card in France, are cleared only by French banks.

On Monday, Cable and Wireless will introduce a music-download package for the European market. Like OD2, Cable & Wireless is aiming at companies that want to brand their own service, like Internet service providers or retail companies.

''From our analysis, there's plenty of business to be done,'' said Andrew Wilding, an executive with Cable and Wireless, which is a partner with the 24/7 Music Shop. ''The vagaries of the European market have been factored into the platform,'' he added. Cable and Wireless's first customer is expected to be Phonofile, a Danish Web site.

Negotiations with holders of music licenses have not been concluded. Even before all the digital music participants are in place -- Sony has said it will begin its Connect downloading business in the United States, Europe and Asia this spring, and the Rhapsody service from RealNetworks intends to export its service to Europe -- analysts are predicting the inevitable shakeout.

Josh Bernoff, principal analyst at Forrester Research, said participants like Coke in Britain and Wal-Mart Stores in the United States are unlikely to be long-term players. (Coke has said it has no plans to expand the service beyond Britain.)

''This is not part of Coke's core business,'' Mr. Bernoff said. ''The connection to music is valuable to them, but it doesn't make sense to me that a soft drink company would be the leading download site in Europe.''